EXPLAINED: starting an STR in December (updated)

[Michael Plaks]

The first version of this article was written in December 2024, and things have changed since. And, in case you wonder what has changed, here is an article explaining it: 
https://www.biggerpockets.com/forums/51/topics/1249780-expla...

Everyone is talking about STRs (short-term-rentals), about the STR loophole and so forth. If you are not into STRs in 2025, you're not cool/hip/fly/rad/fire or whatever nonsense word is to be used this month. And if you're not sure what the STR fuss is all about, start by reading this post:
https://www.biggerpockets.com/forums/51/topics/1122635-the-s...

Today, we're discussing a very specific question related to STRs:

Can I buy an STR in December and still catch all the tax benefits of the so-called STR loophole?

Maybe. Here is a scenario where it all works out nicely.
- You close on December 10th
- The property is in great shape and does not need any significant repairs
- It only needs some paint touch-up and changing a couple of broken fixtures, which you do yourself
- You spend the next week buying furniture, electronics and supplies and installing/arranging everything yourself
- You also roll up your sleeves and scrub the toilets and sinks and appliances
- You list it on AirBnB/VRBO and have your first guest for the 3 days of Christmas
- You second guest rents it from December 28th through January 3rd.
- You personally clean and restock the place between these two guests

Congrats! Save for some unusual complications, you seemingly met all the conditions for your tax benefits.

Now, to traps and gotchas.

Trap 1. Minimum of two completed stays.

You have probably heard that rental property deductions, such as depreciation, start when the property is placed in service. And this date is usually before you get your tenant in. But not so with STRs! It is not enough to place your STR in service.

Why? Because one of the conditions is that your average stay must be 7 days or less. We had a recent court case which said in black and white: you cannot calculate an average if you do not have at least two numbers to average. Duh!

Lesson: if you do not have two separate guest stays in 2025, there is no way to meet your 7-day test. You have an SOL, not an STR.

1st warning: you cannot split one 6-day stay of the same guest into two back-to-back 3-day stays. Nice try, but no cigar. It still counts as one single stay, not two. And you need at least two of those.

2nd warning: a booking that straddles two years counts in its entire duration. Example: your guest arrives on December 28th and stays through January 11th. Only 4 days was left in 2025, however this stay counts as 15 days, not 4 days. (Thanks to my extra-sharp friend @Bernard Reisz  for correcting my error in the original post)

Why does it matter? Because if your first guest stayed for 3 days of Christmas, and this second booking counts as 15 days, then your average length of stay for 2025 was (3+15)/2 = 9 days. This is more than 7 days, and your STR does not qualify as an STR. All tax benefits lost. Ouch.

3rd warning: only paid stays count, and only full-price stays, as opposed to discounted favors for friends and family. Which brings us to...

Trap 2. Personal use.

You cannot have more than 14 days of "personal use" in December. Luckily, staying on the property in order to make repairs and prepare it for tenants is business use, not personal use. Sounds like you don't need to worry about personal use, do you? Sorry, you do.

It is because of the definition of personal use. Guests staying for free is personal use, even if they are not related to you. Guests staying at a discount is ALSO personal use! Yes, despite the fact that they pay you something. Not charging enough is a problem for taxes.

Even if you do not exceed 14 days of such "personal use", you still have another problem: these special-treatment guests will not count towards your required two bookings minimum. So if you let your buddies stay there one weekend for cheap, you still have to find two more guests for December.

Clarification: the personal use test is more complicated than "no more than 14 days." For our specific scenario - buying a new STR in December - 14 days is the rule. For all other scenarios, you will need to look up the full version of the "personal use days" rule.

Warning: many investors believe that minor personal use of your STR is harmless for taxes. It is not! Even one day that you spend in your STR yourself will require allocating a portion of your STR expenses to personal rather than business use. In other words, you lose part of your deductions.

Trap 3. Material participation.

I discussed STR material participation requirement in my other post, linked at the top of this one. Here, we will focus only on a December-specific question: how can I meet material participation if I buy an STR in December?

The straightforward method is to do everything yourself, as in my example above. Otherwise it's tough. You hired cleaners to clean the unit between tenants? You hired a management company? You hired a plumber to unclog the drain? Oops, game over, you lost. Any of the above kills the STR loophole under this "substantially all work" option for material participation.

Is there another way to qualify? What if my only outside help was a cleaning lady for 2 hours? Yes, there might be a workaround. But then you personally will need to log at least 100 hours of hands-on work on the property, all in December. Reading Bigger Pockets posts does not count, sorry. (Not even my posts.) Real work only. I don't think you can meet this 100 hours test in the remaining few days of the year.

Any other workarounds? Maybe, but those would be super rare.

Trap 4. Flipping the switch too soon.

Scenario. You listed your STR on AirBnB December 15th. No takers. Since you did not have 2 required stays in 2025, then you didn't have a qualified STR until 2026. But you can still use the STR loophole, only one year later, right? Wrong!

The problem is that you did place your property in service in 2025. Cost segregation and bonus depreciation belong in 2025 now. But you do not qualify for the STR loophole in 2025! Your losses will be locked. Argh.

Wait, but it's no big deal since the losses will get unlocked in 2026 once the property qualifies as an STR, right? Wrong again! The losses will remain locked. Here goes your brilliant tax strategy.

So is everything lost? Not necessarily, but getting out of this hole is complicated and will probably require expensive professional help.

Maybe waiting until January to list this property would've been smarter.

This all sounds pretty confusing.

It is. What, you expected taxes to be an easy walk?

[Joshua Thompson]

Great information as usual! I laughed way too hard at the "You have an SOL, not an STR"